GBP/USD: Plan for the European Session on December 16. Pound Slows Down Growth

[Ben Graham]

Yesterday, only one entry point into the market was formed. Let's take a look at the 5-minute chart and analyze what happened. In my morning forecast, I highlighted the level of 1.3374 and planned to make market entry decisions based on it. The rise occurred, and the test at 1.3374 was completed, but suitable entry points did not form there. In the afternoon, a false breakout around 1.3395 provided an excellent entry point to sell the pound, resulting in a more than 40-pip decline in the pair.

To Open Long Positions on GBP/USD:

Despite weak data from the US Empire State Manufacturing Index and Christopher Waller's dovish tone, the British pound did not show strong gains against the dollar. Expectations of a rate cut by the Bank of England this week limit the upward potential of the GBP/USD pair. A lot of reports are scheduled for release this morning. The UK unemployment rate and changes in average earnings could lead to a sharp spike in volatility for the GBP/USD pair, just like the data for the services sector business activity index and the PMI for the UK's manufacturing sector. In the event of weak data and further correction of the pair, I expect the first signs of buyers around the support level of 1.3356, formed as a result of yesterday's activity. Only after a false breakout there will it be a good opportunity to open long positions, targeting further growth towards resistance at 1.3395. A breakout and a retest above this range will increase the chances of GBP/USD strengthening, leading to the stop-loss orders of sellers being taken out and a suitable entry point for long positions, with a potential exit at 1.3434. The farthest target will be the 1.3468 area, where I plan to take profits. In the event of a decline in GBP/USD and a lack of buying activity at 1.3356, pressure on the pair will intensify, driving it towards the next support level at 1.3322. Only if there is a false breakout will there be a suitable condition for opening long positions. I plan to buy GBP/USD on a rebound from the low of 1.3287, targeting a 30-35-pip intraday correction.

To Open Short Positions on GBP/USD:

Sellers of the pound emerged at the end of the day, keeping the market within a narrow sideways channel. A breakout will determine the pair's further direction. In the event of a rise in GBP/USD, bears need to act around the nearest resistance level of 1.3395. Only a false breakout there will provide grounds for selling GBP/USD, targeting a decline to the support level of 1.3356, where the moving averages align with the bulls. A breakout and a retest from below this range after weak PMI data will deliver a more significant blow to buyers' positions, leading to stop-loss orders being taken out and opening the path to 1.3322. The farthest target will be the 1.3287 area, where I will take profits. If GBP/USD rises and bears remain inactive at 1.3395, buyers will regain momentum for the bullish trend, potentially leading to a surge toward 1.3434. I plan to open short positions there only after a false breakout. In the absence of a downward movement there, I will sell GBP/USD immediately on a rebound from 1.3468, expecting only a 30-35-pip intraday correction.

Recommended for Review:

Due to the US government shutdown, fresh Commitment of Traders (COT) data is not being published. As soon as the current report is prepared, we will publish it immediately. The latest available data is only from November 18.

In the COT report (Commitment of Traders), there was an increase in long positions and a decrease in short positions. Pressure on the dollar remains—especially after the US Federal Reserve lowered rates again. However, demand for the pound is not as strong due to potential changes in the Bank of England's policy in the near future, which could also lead to a reduction in borrowing costs. The short-term future dynamics of the GBP/USD exchange rate will be influenced by new fundamental statistics. The last COT report indicated that non-commercial long positions increased by 766 to 53,189, while non-commercial short positions decreased by 981 to 132,446. As a result, the spread between long and short positions increased by 282.

Indicator Signals:

• Moving Averages: Trading occurs around the 30-day and 50-day moving averages, indicating market uncertainty.
• (Note: The periods and prices of moving averages are considered by the author on the hourly chart H1 and differ from the traditional definition of classical daily moving averages on the daily chart D1.)
• Bollinger Bands: In the event of a decline, the indicator's lower boundary will act as support around 1.3355.

Description of Indicators:

• Moving Average (period 50): Indicates the current trend by smoothing volatility and noise, highlighted in yellow on the chart.
• Moving Average (period 30): Indicates the current trend by smoothing volatility and noise, highlighted in green on the chart.
• MACD (Moving Average Convergence/Divergence): Fast EMA - period 12. Slow EMA - period 26. SMA - period 9.
• Bollinger Bands (Period - 20).
• Non-commercial Traders: Speculators such as individual traders, hedge funds, and large institutions that use the futures market for speculative purposes and meet specific requirements.
• Long Non-commercial Positions: Represents the total open long position of non-commercial traders.
• Short Non-commercial Positions: Represents the total open short position of non-commercial traders.
• Total Non-commercial Net Position: The difference between short and long positions among non-commercial traders

The material has been provided by InstaForex Company - www.instaforex.com